The Russian Central Bank proposed a ban on the mining, creation and use of cryptocurrencies, in a report released Thursday.
The Central Bank said that the proliferation of cryptocurrencies poses a risk to the Russian financial system and the stability of the Russian ruble. The bank said it expected the ban to reduce those threats.
Russia is the third country to crack down on cryptocurrency over the past year, after China and Kazakhstan.
On Thursday, Bitcoin closed down $1,061.61, or 2.5%, to 4,0680.42. In the trading period after the close, it fell an additional 5%, to $38,600.
The report stated that “the situation of the Russian ruble, which is not a reserve currency, makes it impossible to apply a soft approach in Russia and ignore the growth of risks. In our opinion, appropriate additional measures.”
The report said that the proposal would ban the issuance and circulation of “cryptocurrencies, cryptocurrency exchanges, cryptocurrency exchanges, and peer-to-peer (P2P) platforms within the borders of the Russian Federation, and impose penalties for violating the ban.”
For years, Russia has claimed that cryptocurrencies are used to fund terrorism and money laundering. Even though the country legalized crypto in 2020, it prevented people from using it to pay for things. The proposed ban would establish liability for violating this prohibition.
The Bank of Russia also wants to ban financial institutions, financial intermediaries and the country’s financial infrastructure from trading cryptocurrencies and creating related financial instruments. The regulator said the recent rapid bubble was a speculative financial pyramid that threatens the financial stability of the Russian economy. In order to achieve the ban, the bank said that banning cryptocurrency mining is the best solution.
Elizaveta Danilova, head of the Central Bank’s Financial Stability Department, said at a press briefing that the bank does not plan to ban Russian citizens from holding cryptocurrencies.
“We note that we do not propose to ban the holding of cryptocurrencies by citizens,” she said, adding that although there are risks of fraud, as well as difficulties in asserting rights when acquiring cryptocurrency on foreign crypto exchanges, according to TASS, Russian state media.
Just last month, the head of the Bank of Russia, Elvira Nabiullina, said crypto assets are the riskiest investment strategy. This followed a statement issued in June against the use of Russia’s financial infrastructure in cryptocurrency transactions, according to TASS.
China, in September, launched a complete crackdown on the cryptocurrency market. Much like the Russian proposal, China has banned cryptocurrency trading and mining. This caused the cryptocurrency market to drop significantly in September before climbing to an all-time high of $69,000 in November.
After the Chinese ban, many miners went to Kazakhstan. As of August, Kazakhstan hosted 18% of global Bitcoin mining, second only to the United States. At that time, Russia ranked third in most Bitcoin mining.
Two weeks ago, all cryptocurrency mining dried up after Kazakhstan shut down the internet amid protests. The protests started after the government doubled the price of gas. In an attempt to disrupt communications between protesters, the government shut down the internet nationwide, but in the process destroyed the miners’ computing power. With 18% of cryptocurrency mining wiped out worldwide, the market continued to sink.
As of Thursday’s close, Bitcoin is down 41% from November.